Department of Defence returning unspent millions to Ottawa

The Department of National Defence will need to return a significant amount of funds from its budget to government coffers after it couldn’t spend the money, according to documents obtained by the Ottawa Citizen.

Sources say that DND wasn’t able to spend more than $1.5 billion of its $21 billion budget for the fiscal year 2010-11.

But DND will be able to keep some of that, having received approval from government to carry forward $444 million into the next fiscal year, according to documents leaked to the Citizen.

“Forecasted lapse of funds is significant,” the financial documents presented to a senior DND management board in February pointed out.

The documents also note that “additional slippage is expected.”

The funding is “lapsed” because it could not be spent by March 31, the end of the 2010-11 fiscal year.

In 2009-10, DND had lapsed funds totalling $1.18 billion, according to the Public Accounts report and DND’s own financial statement. The department was allowed by the government to carry forward $410 million of that sum.

Poor management practices and a lack of procurement staff to oversee the billions of dollars in proposed equipment purchases have been blamed for DND’s inability to spend all of its budget.

The lapsed funds include money from operations and maintenance as well as equipment procurement budgets.

In some cases, DND was able to transfer some money which it was not able to spend into other organizations within the department. That happened in the case of $2.7 million which was transferred to the department’s procurement organization to help pay for a northern warning satellite system, according to the documents.

But such amounts are relatively small and some military officers have expressed frustration with the fact that, although DND has seen its budget steadily increased under the Conservative government, significant amounts of money have had to be returned because the department can’t spend them.

Auditor General Sheila Fraser also identified the problem with lapsing funds in a 2009 report. “The Department’s financial management and monitoring of resources may not be adequate to support decision-making by senior management,” that report noted.

“The lack of accurate and timely information for decision makers contributed to the lapsing” of funding, it added.

In December 2009 the Standing Committee on Public Accounts, citing the auditor general’s report, also issued a study calling on DND to improve its financial management systems and controls.

The Defence Department would not comment and referred questions to Treasury Board. Treasury Board in an email noted that the next edition of the Public Accounts, expected to be released in the fall, would include information about DND’s lapsed funds for fiscal year 2010-11.

Lapsed funds are an ongoing problem with some federal departments and the beginning of each year often sees the bureaucracy rushing to try to spend any cash left over in its budget. But DND’s figures are so large that it is almost impossible to spend such amounts.

Defence analyst Martin Shadwick said the downside for DND is that much of the money is not likely to return to the department.

“That amount of money is not small obviously,” said Shadwick, who teaches strategic studies at York University in Toronto. “They’re not likely to get most of it back so the question is, how do they make up for the loss?”

Shadwick said part of the problem could be linked to a lack of staff needed to move some of the multi-billion dollar military equipment programs forward. Moving forward with equipment projects also relies on Public Works as well as Industry Canada, and if those departments are having problems that could also slow down a DND program, he said.

Projects to purchase new Joint Support Ships and fixed-wing search and rescue aircraft have been on the books for years but little progress has been made.

In a 2008-09 report, the then-head of the navy, Vice Admiral Drew Robertson, pointed out that almost 400 procurement specialists were needed by 2011 to oversee new shipbuilding programs as well as other equipment programs but his organization was at its smallest in decades and was having difficultly finding those personnel.

At the time, the department responded that it had increased the number of its procurement personnel.

According to the statement from Treasury Board, at the end of each fiscal year all spending authority voted by Parliament lapses, except for the Parks Canada Agency, the Canada Revenue Agency and the Canada Border Services Agency.

“Since spending authority lapses at the end of a fiscal year, departments or agencies lose the authority to spend any unexpended balances remaining in their appropriations,” Treasury Board added.